Euro stablecoins such as those of Tether or Celo have so far been classified as irrelevant. The stablecoin sector is firmly in the hands of the US dollar stablecoins, which account for over 95 percent of the total market. Above all, players such as Tether, Circle, Binance or Paxos dominate the market here. This could now change with Circle’s Euro Stablecoin.
Because the EUROC, based on Euro Coin, can bring a new level of trust and protocol coverage to the market. This is due to the fact that a conservative cover, as Circle does with the EUROC, has not been economical so far. However, this is exactly what is changing with the increase of the key euro interest rates above zero. Now companies can issue fully covered euro stablecoins without having to pay negative interest.
Huge Advantages of Euro Stablecoin
So far, crypto investors and traders have generally been dependent on cashing out in US dollar stablecoins. So anyone who holds tokenized fiat money from the eurozone – which is likely to apply to a large part of all active crypto traders – has been exposed to exchange rate risk so far.
As a result, blockchain applications and especially DeFi applications are likely to benefit if a euro stablecoin is established that reduces the hurdles of people from the eurozone. Companies with a strong import and export business outside the SEPA area could also benefit from direct payment processing.
ECB hands over buy-out programme to Circle
An additional external demand could benefit the euro itself. Meanwhile, not several billion, but several trillions of US dollars are being transacted in the stablecoin sector every month, primarily through Tether USDT and Circle USDC.
As the second largest currency in the world, the euro could gain correspondingly more market share in the foreign exchange sector through a digital token derivative. The ECB would benefit from a strong and fully backed euro stablecoin. After all, it would have an additional buyer of euro government bonds. Especially since it has to reduce its government bond purchases due to high inflation. To put it bluntly, the yields on an Italian government bond also depend on the possible success of the EUROC.
Uncle Sam will take over!
A certain irony cannot be avoided. A US company (Circle), with the help of a US bank (Silvergate), is ensuring that the world receives a promising digital euro, because Europe is once again not able to do it itself. One more thing: since the Internet economy through Google, Amazon and Meta is already in the hands of American companies anyway, why not our money as well. After all, our data is already stored in the US cloud. With the EUROC, Web 3.0 is taking another major step across the Atlantic.
Is it really that bad in the EU?
One may classify previous formulations as excessive. But there is a danger that due to over-regulation in the EU, the scenario outlined is more realistic than expected. Blockchain professor Philipp Sandner from the Frankfurt School of Finance and Management had already pointed out the dangers of MICA overregulation in an article. Other regulatory experts such as Patrick Hansen (formerly Bitkom e.V., now Unstoppable Finance) also express concern that the hurdles for Euro stablecoins in the EU are too high.
Whether the EUROC of Circle will meet the MiCA requirements is still in the stars. After all, the crypto regulation has not yet been adopted in the EU. A big uncertainty factor for any company in the crypto sector.
Digital Euro only for EU foreigners
If the Euro stablecoin is not approved in the EU due to MiCA, then EU-licensed service providers are not allowed to offer it to their customers. So if you want to get the advantage of a trustworthy Euro stablecoin, you would have to switch to non-European service providers. Exactly the opposite of sensible regulation.
In this case, innovation and value creation would take place outside European borders. A Swiss, British or American crypto trader could use EUROC accordingly, while Europeans have to resort to USD stablecoins if they do not want to switch to foreign service providers.
Dai Stablecoins with Bad Odds
But even if Circle receives an EU approval for its EUROC, this does not necessarily mean that other, more decentralized projects will also receive an approval. DeFi projects, such as MakerDAO with Dai, are likely to have even worse cards than the highly regulated and centralized Circle with Goldman Sachs and Blockrock in the background.
It remains to be hoped that the MiCA regulation will not prevent either a EUROC or a Dai from MakerDAO. If so, then this would be a clear sign that Europe is once again moving itself out of Web 3.0.